Payroll Cards Facing Legal Scrutiny

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In 2013, New York’s Attorney General began investigating companies that pay hourly employees using prepaid payroll cards, with the concern that fees associated with pay card withdrawals may be insufficiently disclosed or excessive, and that the cards may decrease employees’ take-home pay which may, in some cases, result in pay below the minimum wage.

There was also concern that these cards may not comply with state laws governing printed payroll statements and written consent for using the cards; federal law which prohibits mandatory use of prepaid payroll cards as a condition of employment; and collective bargaining agreements.

For example, in a 2013 case filed against a McDonald’s franchise, a former employee claimed she was given no other option than a payroll card to access her paycheck by her employer and that because of the card’s numerous fees, her paycheck was reduced to below minimum wage.

Many employers use prepaid payroll cards as an alternative form of electronic wage payment. They are similar to debit cards, and generally offered to employees who do not have access to or who do not want to use direct deposit. They are especially common among retailers and restaurants.

There are many benefits to using payroll cards. Payroll cards typically give employees free access to their funds or access at a significantly lower cost than those charged by check cashers, and also benefit employers with lower costs and fees. Electronic wage payment reduces employers’ costs relative to creating, processing, and reconciling paper checks.

In light of this investigation, however, employers should be cautious with using prepaid payroll card systems and make sure that these systems are in compliance with state and federal laws.

Please note that by providing you with research information that may be contained in this article, ERC is not providing a qualified legal opinion. As such, research information that ERC provides to its members should not be relied upon or considered a substitute for legal advice. The information that we provide is for general employer use and not necessarily for individual application.